Update on Pay or Play and Other Health Care Reform Developments for the West Michigan Chapter of the Construction Financial Management Association Tripp Vander Wal

The materials and information have been prepared for informational purposes only. This is not legal advice, nor intended to create or constitute a lawyer-client relationship. Before acting on the basis of any information or material, readers who have specific questions or problems should consult their lawyer. 2

Update on pay or play  Large employers (with 50 or more full-time employees) are required to offer health coverage to their employees and their dependent children or pay a penalty (known as the pay or play penalty)  The pay or play penalty was set to take effect in 2014 and has been postponed for one year  The effective dates for all other aspects of Health Care Reform remain unchanged 3

Update on pay or play  One important tool the IRS provided to employers in managing this requirement was to allow employers to adopt a measurement period and a stability period  If an employee does not work 30 or more hours, on average, during the measurement period, the employee is not required to be offered health coverage during the subsequent stability period 4

Update on pay or play  The measurement period must be at least three months long and no longer than 12 months  The stability period must be at least six months long and at least as long as the measurement period  A large employer’s first stability period for ongoing employees will begin in 2015  For this reason, the measurement period will need to begin in

Update on pay or play  Short Initial Measurement Period - The proposed regulations issued before the delay in the pay or play penalty allowed employers to adopt a special shorter measurement period for the first year  Example: Employer’s first stability period is January 1, 2014 through December 31,

Update on pay or play  The measurement period must then be at least 12 months long, beginning no later than January 1, 2013  Prior transition relief permitted a shorter measurement period for the first year as long as it was at least six months long and began by no later than July 1, 2013  It is unclear whether this same transition relief will be available for measurement periods beginning in 2014 relating to stability periods beginning in

Update on pay or play Non-Calendar Year Plans  Before the pay or play penalty was delayed until 2015, the IRS had also announced a delay in the original January 1, 2014 penalty effective date for non-calendar year plans (until the first day of the 2014 plan year)  In order to qualify, the employer’s plan had to be in existence on a non-calendar year basis as of December 27,

Update on pay or play  In addition, the employer had to offer coverage to a minimum percentage of its employees or, alternatively, a minimum percentage of the employer’s employees had to be actually enrolled under the plan  It is unclear whether this transition rule will be available following the one-year delay in the pay or play penalty 9

Individual mandate  While the employer pay or play penalty has been postponed until 2015, individuals will be subject to the individual mandate penalty beginning as of January 1, 2014 if they fail to enroll in minimum essential coverage 10

Individual mandate  Minimum essential coverage can be obtained through:  An employer group health plan  A government program such as Medicaid or Medicare  The exchange  The initial open enrollment period for federally-run exchanges is October 1, 2013 through March 31,

Individual mandate  What if an employee is eligible for the employer’s health plan as of January 1, 2014 but is not enrolled?  For example, the plan operates on a non-calendar year basis and the open enrollment period occurred in 2013 before the employee was aware of the individual mandate 12

Individual mandate  There are two options to provide relief to individuals in this situation  Option 1 - if an individual is eligible to participate in an employer group health plan which operates on a non- calendar year basis, and the employee is not enrolled as of January 1, 2014, the employee will not be subject to the individual mandate penalty until after the employer’s plan year ends 13

Individual mandate  Option 2 - the employer can amend its Section 125 plan to allow employees to enroll in the employer’s health plan on a mid-year basis during the plan year and pay the required premiums on a pre-tax basis 14

Individual mandate  Also with respect to employers who operate their health plans on a non-calendar basis, the employer can amend its Section 125 plan to allow employees to drop their employer- provided health coverage and discontinue their pre-tax premium payments on a mid-year basis during the plan year in order to enroll in coverage on the exchange 15

Individual mandate  Employers cannot allow employees to pay their premiums for individual coverage on the exchange on a pre-tax basis under the employer’s Section 125 plan  However, small employers who offer group coverage through the SHOP exchange may allow employees to pay their SHOP premiums on a pre-tax basis under the employer’s Section 125 plan 16

Individual mandate  One lingering issue has been whether an employer, instead of offering a group health plan to its employees, can direct the employees to the exchange to purchase an individual policy and then reimburse all or a portion of the employee’s premium cost on a tax-free basis  Recent guidance confirms that the answer to this question is “no” and that this type of tax-free reimbursement will not be permitted 17

Individual mandate  Not only is this the case with respect to individual coverage purchased on the exchange, it is also the case for any other individual policy (such as through a private exchange)  However, an employer can reimburse the cost of an employee’s individual coverage on an after-tax basis 18

Health reimbursement arrangements (HRAs)  HRAs are self-insured benefits funded exclusively by the employer to reimburse specified eligible expenses  Some HRAs reimburse all or a portion of the deductible, copays and/or co-insurance under the employer’s group health plan  Some HRAs will reimburse any IRC §213(d) deductible medical expense 19

Health reimbursement arrangements (HRAs)  Beginning in 2014, HRAs will generally not be permitted unless  The only eligible participants are retirees (a retiree only HRA); or  The HRA is integrated with the employer’s group health plan 20

Health reimbursement arrangements (HRAs)  An HRA will be integrated for this purpose if it is confined to employees who are actually enrolled in the employer’s group health plan or the group health plan of the employee’s spouse  Further, to be integrated, the HRA must be amended to permit the employee to waive participation in the HRA at least annually and upon termination of employment 21

Health reimbursement arrangements (HRAs)  Because the HRA will prevent an individual from qualifying for a premium credit on the exchange, the waiver provision is necessary to facilitate premium credit eligibility 22

Health flexible spending accounts (FSAs)  Employers should review their medical FSA plan design  If either of the following provisions are present, the medical FSA will not be an “excepted benefit”  Employer non-elective contribution in excess of $500  Certain employees are eligible for the medical FSA but are not eligible for the employer’s group health plan (e.g., a part-time employee) 23

Health flexible spending accounts (FSAs)  If the medical FSA includes either of these two provisions, the medical FSA will not be an excepted benefit and the employer will need to take certain steps  Prepare and distribute an SBC  Pay the PCORI fee  Comply with the preventive care mandate 24

Required plan changes for 2014  Waiting Period – As of the first day of the 2014 plan year, a health plan may not impose a waiting period of longer than 90 days for newly eligible employees  Coverage must be effective no later than the 91 st day  A first of the month after 90 days rule will not comply  If an employee is in the waiting period on the first day of the 2014 plan year, the old waiting period can’t apply if it would exceed 90 days 25

Required plan changes for 2014  Eligibility conditions that are not based solely on the lapse of a time period may still be permitted (e.g., a variable hours employee must complete 250 hours in a quarter before being considered eligible and subject to a waiting period)  The 90-day waiting period will also not prohibit an employer from requiring seasonal and variable hour employees to complete a measurement period before being offered coverage 26

Required plan changes for 2014  Limit on Annual Deductibles – For plan years beginning in 2014, the annual deductible cannot exceed $2,000 for single coverage or $4,000 for two- person or family coverage  These amounts may be increased annually for increases in health care costs  This rule only applies to fully-insured plans in the small group market 27

Required plan changes for 2014  Cap on Maximum Out-of-Pocket Limits – For plan years beginning in 2014, the maximum out-of-pocket limits for all non-grandfathered plans cannot exceed the maximum out-of-pocket limits for high deductible health plans offered in connection with an HSA 28

Required plan changes for 2014  For 2014, the limits are $6,350 single / $12,700 for two-person or family  These amounts may be increased annually for increases in health care costs  This rule applies to fully-insured and self-funded plans, regardless of size (small or large group)  The limit considers deductibles, copays and co-insurance 29

Required plan changes for 2014  The limit considers both medical and prescription expenses  However, there is a special transition rule for 2014, where a health plan uses a different service provider to administer medical vs. prescription drugs, the limit may be applied to medical and prescription drug benefits separately 30

Required plan changes for 2014  Clinical Trials – For plan years beginning in 2014, non- grandfathered health plans must offer certain coverage to individuals participating in an approved clinical trial to treat cancer or another life threatening disease 31

Required plan changes for 2014  Routine patient costs for items and services furnished in connection with participation in the trial must be covered but other costs such as experimental drugs or devices are not required to be covered 32

Required plan changes for 2014  Pre-existing conditions – Health Care Reform initially prohibited pre-existing condition exclusions or limitations for participants under age 19  Effective for plan years beginning in 2014, pre-existing condition exclusions or limitations are prohibited with respect to all participants, regardless of age 33

Required plan changes for 2014  Since plans will no longer have pre-existing conditions, certificates of creditable coverage will no longer be necessary and employer health plans and health plan insurers may discontinue providing certificates after December 31,

Don’t forget about the nondiscrimination rules  Self-funded group health plans have been subject to nondiscrimination rules for many years  Those rules prohibit discrimination in favor of highly compensated individuals with regard to eligibility and benefits  Historically, fully-insured group health plans have not been subject to nondiscrimination rules 35

Don’t forget about the nondiscrimination rules  That distinction changed under Health Care Reform  Now fully-insured non-grandfathered group health plans will be subject to similar nondiscrimination rules  However, in December 2010, the IRS announced a delay in the new rules pending the issuance of regulations  It does not appear that regulations are likely to be issued in the near future 36

New participant notices must be provided  Summary of Benefits and Coverage – One of the most significant new participant notices required under Health Care Reform is the summary of benefits and coverage (SBC)  The purpose of the SBC is to provide certain information in a prescribed format to participants in an employer’s health plan so participants can easily compare the information to other plans they may be eligible for, including the coverages which will be offered on state exchanges 37

New participant notices must be provided  The SBC must be updated each year and provided to participants in several situations including upon initial eligibility, at annual open enrollment and upon request  For 2014, the SBC must be expanded to also indicate whether the plan offers “minimum essential coverage” and whether the plan provides “minimum value” 38

New participant notices must be provided  Notice of Exchange Availability –Employers must provide individuals with a notice regarding the availability of the exchanges which must be in place by 2014, and the premium credits and cost-sharing subsidies available to low income individuals if they enroll in coverage on the exchange  A model notice has been published 39

New participant notices must be provided  The model notice can be found here: (model for employers that offer health coverage) (model for employers that do not offer health coverage)

New participant notices must be provided  The notice was required to be provided to all existing employees by October 1, 2013  Newly-hired employees must be provided with a copy of the notice within 14 days of their first day of employment  Last month, the feds issued guidance indicating that no specific penalty would be assessed against employers for failure to provide the notice 41

New participant notices must be provided  COBRA – A new model COBRA election notice has been issued to notify qualified beneficiaries that rather than electing COBRA, they may alternatively, want to purchase health coverage on the exchange 42

Employer reporting: MEC  Beginning in 2015, health insurers in fully-insured arrangements and plan sponsors of self-funded arrangements must report information about what months employees and their dependents are enrolled in the employer’s plan 43

Employer reporting: MEC  This will allow the IRS to administer the “individual mandate”  This reporting requirement applies to all employers (i.e., not just “large employers”) 44

Employer reporting: MEC  Information must be reported to the IRS by February 28 (or March 31 if filed electronically) and to employees by January 31 of the year following the calendar year the employee and his or her dependents were enrolled in the employer’s plan (because this report is optional in 2014, the first report will be due in 2016) 45

Employer reporting: pay or play  The second new employer reporting requirement only applies to large employers (i.e., those with 50 or more full-time and full-time equivalent employees) 46

Employer reporting: pay or play  Large employers must furnish information to both the IRS and employees including:  Employer information;  Certification that the employer offered employees and their dependents opportunity to enroll in MEC;  Months coverage was available; 47

Employer reporting: pay or play  Employee’s share of monthly premium for self-only coverage in the lowest cost plan that provides MV;  Number of full-time employees in each month; and  Employee information 48

Employer reporting: pay or play  Information must be provided to IRS by February 28 (or March 31 if filed electronically) and to individuals by January 31  Reporting in 2014 is optional 49

Employer reporting: pay or play  Employers may use different forms for different plans (i.e., one form for a union plan and one form for a non-union plan) 50

Employer reporting: comments  Entities in controlled groups must each report separately  The IRS acknowledges that large employers that must report MEC and pay or play will report duplicative information  These employers may furnish one combined statement to employees and the IRS has requested comments on how to consolidate reporting to IRS 51

Employer reporting: comments  Beginning in 2014, HHS will send each employer a report with information about which employees, if any, purchased coverage through the exchange and received a premium tax credit 52

Employer reporting: comments  If the employer disagrees with respect to any employees that received a premium tax credit (i.e., the employee was eligible for affordable, minimum value coverage from the employer) the employer will have an opportunity to appeal  The employer will have another opportunity to appeal after the IRS assesses a pay or play penalty 53

Employer reporting: comments  In 2014, employers should prepare to be contacted by the exchange to determine if its employees who purchased coverage through the exchange and applied for a premium tax credit are eligible 54

Don’t forget about taxes and fees  PCORI Fee - For plan years ending on and after October 1, 2012, a new fee will be assessed to finance comparative clinical effectiveness research through the Patient-Centered Outcomes Research Institute (PCORI)  The fee is based on the average number of covered lives (employees and dependents) under a health plan multiplied by $2 for the plan year ending on or after October 1,

Don’t forget about taxes and fees  For plan years ending on or after October 1, 2014 the fee will be increased based on national health spending  The fee no longer applies for plan years ending after October 1,

Don’t forget about taxes and fees  In the case of fully-insured plans, the fee is payable by the insurer. In the case of self-funded plans (including HRAs), the fee is payable by the employer  The PCORI fee must be paid by July 31 of the calendar year immediately following the last day of the plan year  The fee is reported on IRS Form

Don’t forget about taxes and fees  Temporary Reinsurance Program – A new fee is imposed on group health plans to fund reinsurance for insurers in the individual market  Fee is imposed during 2014, 2015 and 2016  Goal is to raise $25 billion 58

Don’t forget about taxes and fees  Fee is front-end loaded – will raise $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016  IRS regulations estimate the fee for 2014 to be $63 per covered person  If plan is fully-insured, the fee is paid by the insurer – if the plan is self-insured, the fee is imposed on the plan (but likely will be sent in by the TPA) 59

Don’t forget about taxes and fees  Applies to plans that provide major medical coverage  Fee is based upon number of covered lives, so both employees and dependents are counted  Fee applies on a calendar year basis, even if the plan has a different plan year 60

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